QUARTERLY NATIONAL ACCOUNTS INVENTORY

Transcription

1 Statistical Service of Cyprus QUARTERLY NATIONAL ACCOUNTS INVENTORY Nicosia April 2008

2 2

3 Table of contents Page Chapter 1: Overview of the system Organisation and institutional arrangements Publication timetable, revisions policy and dissemination of QNA Publication timetable and dissemination of QNA Revisions policy QNA compilation approach Seasonal adjustment and working day adjustment Balancing, benchmarking and other reconciliation procedure Additional information...9 Chapter 2: Publication timetable, revisions policy and dissemination of QNA Release policy Contents published Special transmissions Policy of metadata...12 Chapter 3: GDP components: the production approach Gross value added, including industry breakdowns (but excluding FISIM) The treatment of FISIM Taxes less subsidies on products...18 Chapter 4: GDP components: the expenditure approach Household final consumption Government final consumption NPISH final consumption Gross capital formation Gross fixed capital formation Changes in inventories and valuables Imports, exports...21 Chapter 5: GDP components: the income approach Compensation of employees, including components (wages and salaries) Taxes less subsidies on production and imports Gross operating surplus & mixed income...26 Chapter 6 : Constant price estimations General constant price policy Estimation of GDP from output and from expenditure approach Method currently in use Non-additivity concept Contributions to GDP growth...30 Chapter 7: Population and employment Population Employment: persons Actual Hours worked...34 Chapter 8: From GDP to net lending/borrowing...37 Chapter 9: Flash estimates Flash GDP estimate...39 Chapter 10 Seasonal adjustment and working day correction Policy for seasonal adjustment Policy for working-day correction

4 Chapter 11 Balancing, benchmarking and reconciliation procedures Quarterly GDP balancing procedure Benchmarking of QNA and ANA...47 Chapter 12 Main data sources used Statistical data sources used for the production approach Statistical data sources used for the expenditure approach Statistical data sources used for the income approach

5 Chapter 1: Overview of the system 1.1 Organisation and institutional arrangements The Statistical Service of Cyprus is the authority responsible for the compilation and the publication of most of the official statistical data in Cyprus. The information of the users is achieved via the website, various printed publications, statements for the media and informative bulletins. The Statistical Service of Cyprus was set up in 1950 as a small administrative unit while its real function started after Cyprus became independent, in The Statistical Service of Cyprus is organised by subject matter on the basis of 8 main Divisions and 4 supporting Sections. The main statistical Divisions are: - National Accounts and Foreign Trade - Industry, Construction, Energy, Environment, Science and Technology - Labour force, Prices, Wages and Salaries - Public Finance, Services - Demography, Social Statistics, Tourism - Harmonized Index of Consumer Prices, Wholesale and Retail Trade - Agricultural Statistics - Transport Statistics The supporting sections pertain to the following: - Statistical information and ICT surveys - Data processing and technical support - Registry - Accounts The Statistical Service of Cyprus currently employs 145 permanent staff. A number of casual staff is also employed to assist in the various censuses and sample surveys, primarily at the data collection phase. The following units of the National Accounts section are involved in the production of the national accounting data and the number of person involved in each unit is given in brackets. Furthermore it should be noted that out of the total 16 persons, 12 persons are permanent staff and the remaining are employed on a contractual basis. Compilation of National accounts, the unit (6) has the responsibility for the preparation of the annual National Accounts both at current and constant prices. Quarterly accounts, the unit (1) has the responsibility for the preparation of the quarterly National Accounts. The person responsible for the compilation of QNA is Maria Constantinou ( mconstantinou@cystat.mof.gov.cy). Short term economic indicators, the unit (2) has the responsibility for collection and the preparation of short term indicators. 5

6 Business accounts, the unit (2) has the responsibility for conducting annual economic surveys such as the Real Estate activities survey, the Financial Intermediation survey and the Local Authorities survey. Financial accounts, the unit (2) has the responsibility for the preparation of the Financial Accounts. Institutional sector accounts, the unit (1) has the responsibility for the preparation of the Institutional sector Accounts and the Rest of the World account. Supply and Use tables and Own resources, the unit (2) has the responsibility for the preparation of Supply and Use tables, as well as the satellite accounts for Health and Tourism. In addition, it provides data for the calculation of VAT Own Resources. 1.2 Publication timetable, revisions policy and dissemination of QNA Publication timetable and dissemination of QNA The Statistical Service of Cyprus rendered its website as the main source of statistical information, without this entailing the suppression of other printed means of dissemination as publications, bulletins and statements via the press. The Statistical Service publishes on its website two types of release calendar: The quarterly release calendar which contains the dates of the Press Release and announcements of the Statistical Service, which are preliminary scheduled to be released during the current trimester and the weekly release calendar, which contains the dates scheduled to be released in the following week. The various statistical data are categorised in the web pages under 10 Statistical Themes and 27 subthemes. The Statistical Themes are: -Economy -Prices and Inflation -Population and Social Conditions -Labour -External Trade -Agriculture -Industry and Construction -Energy and Environment -Transport, Tourism, Trade, Other services -Other Quarterly national accounts are disseminated at the same time for all, national and external users which is the rule for all dissemination data in the web site address ( in the Statistical theme Economy The Statistical Service of Cyprus set up its first effort in compiling Quarterly National Accounts at the beginning of Cyprus, among the member states of the European Union, was obliged to produce QNA. Assistance in setting up the system of Quarterly Accounts in Cyprus was provided by the Italian 6

7 experts, Giovanni Savio and Marco Marini, who are thanked warmly for their help. The expert reports were of a great value and were used as an important ingredient for the preparation of this inventory. Financial support was provided by the Commission of the European Communities, which is here gratefully acknowledged (Grant Agreement, contract number ). The first transmission to Eurostat took place at the beginning of At the early beginning, only the GDP growth was transmitted to Eurostat, but since then, an effort has been made to achieve a full set of data transmission. Nowadays, the questionnaires tables 101, 102, 103, 104, 105, 112 are regularly transmitted at t+70, in raw, working day and working day/seasonally adjusted form. In addition, a flash estimate of GDP is calculated at t+45 and transmitted to Eurostat since Concerning the length of the series, Cyprus being a new Member State, has a responsibility for transmission of QNA data as from 1995Q1. As already mentioned, the Quarterly national accounts are disseminated at the same time for all, national and external users. Due to this fact the directive concerning the publication timetable of the Statistical Service is driven by the coordinated release dates of quarterly national accounts of Eurostat. Consequently, the Statistical Service disseminates its QNA at t+45 and at t Revisions policy The revision routine policy of QNA is closely related to that of ANA. A full set of Annual data is available from 1995 onwards while the last two years are preliminary estimates till the results of the annual surveys are adopted. When new annual data are available, new annual econometric relationships are estimated, the Chow-Lin quarterly disaggregation procedure is run with new estimated coefficients and thus, the quarters may be revised. In addition, occasional revisions of ANA and subsequently of QNA may be carried out irregularly according to particular needs. Generally it has been noticed that causes of routine revisions in QNA essentially include: a) Revisions due to changes in annual accounts; b) Revisions due to seasonal adjustment; c) Revisions due to the quarterly disaggregation and then to changes in the estimated coefficients; d) Revisions due to changes/revisions in the short-term indicators used; e) Revisions due to the availability of indicators and the replacement of forecasts, with actual data; f) Revisions due to punching errors. 1.3 QNA compilation approach. On the basis of the guidelines of Eurostat, the Statistical Service decided to adopt an indirect approach in estimating QNA (instead of relying on direct estimates based on quarterly ad hoc surveys). The lack of the same sources used at annual level does not permit to employ the same methodology also at quarterly level. The annual data is temporally disaggregated by means of related indicators observed at quarterly frequency. The Chow-Lin s approach (1971) is used to this purpose, a wellknown temporal disaggregation technique. According to this method, quarterly national accounts are generally constructed on the basis of short term indicators. Each account series is linked to one or more related quarterly series, available at the time of compilation of the account series themselves. Apart from the estimation of single series, statistical methods are also used in order to achieve the accounting relationships. 7

8 For seasonal adjustment, the model-based approach in the estimation of quarterly national accounts is also adopted. It is important to stress that the quality of the final results in the estimation of quarterly national accounts depends on a number of factors, the most important one being - for countries adopting an indirect approach - the quality of the indicators used. The ability of short-term indicators to give reliable and timely information on the evolution of the phenomena under study is an essential feature to be addressed at the very preliminary stage, as to get good estimates. For the case of Cyprus, the GDP estimate is computed from the output-side. Table 1 and Table 2 show the classification of GDP by branches of economic activity, with the relative weights and with respect of the total GDP from 1995 to From this table the production structure of Cyprus economy is immediately recognised. The services sector accounts for about 76% of total GDP for the period, while industry and agriculture contribute around 20% and 4% of total GDP respectively. Table 1. Percentage Distribution of Gross Value Added by Economic Activity Primary (A + B) Secondary (C+D+E+F) Tertiary (G+H+I+J+K+L+M+N+O+P) Total GVA Table 2. Percentage Distribution of Gross Value Added by Economic Activity AYA Agriculture, hunting and forestry AYB Fishing AYC Mining and quarrying AYD Manufacturing AYE Electricity, gas and water supply AYF Construction AYG Wholesale and retail trade; repairs AYH Hotels and restaurants AYI Transport storage and communications AYJ Fin. Intermediation AYK 1 Real estate activities AYK 2 Renting of machinery and equipment AYK 3 Other bus. Activities

9 AYL Public administration and defence AYM Education AYN Health and social work AYO Other community, social and personal services AYP Private households with employed persons Total GVA Seasonal adjustment and working day adjustment The model-based approach is used to seasonal adjust the time series. The process of seasonal adjustment is carried out on related indicators through the programs TRAMO-SEATS. The preferred indicators are seasonally adjusted and then, the SA indicators are used to obtain seasonal adjusted versions of the NA aggregates. The working day adjustment is generally applied for three effects, associated to the calendar structure: working days, Easter and leap year. In the case of Cyprus only the two of them are taken into consideration, the working day and the leap year. The Easter effect for the case of Cyprus is not applicable as for the Orthodox countries, Easter is either in April or May which means that Easter is always during the 2 nd quarter of the year. This means that at quarterly level, Easter is without meaning concerning the working day adjustment. It is also important to mention that: a) The working day adjustment is applied at the monthly indicators. b) Monthly indicators are aggregated (eventually after forecasting the last missing observations) on a quarterly basis before being seasonally adjusted with the Tramo-Seats program; c) From the early beginning, the problem of revision of seasonality was stated and it was suggested that the program Tramo-Seats should be run once per year and the model chosen by Tramo, should be kept fixed for one year while parameters should be let free to vary until the complete year become available (option model fixed-parameters free). When Tramo-Seats failed to find the optimal model the airline model was applied to corresponding time series. In continuation to that, for practical issues, we proceed to concurrent adjustment, which means that at every period the optimal forecast is computed based on the best options of treatment. The adoption of this option leads of course to more revisions concerning the seasonal data. 1.5 Balancing, benchmarking and other reconciliation procedure Quarterly raw and seasonally adjusted data is obtained via quarterly disaggregation of the same annual data with the raw and seasonally adjusted indicator. 1.6 Additional information Cyprus started compiling QNA at the beginning of At that time, the GDP growth rate was the only figure published and transmitted to Eurostat. From 2003Q1, data on Production and Expenditure side was compiled and transmitted, while from 2005Q3 onwards a full set of analysis is available for users, from the production, expenditure and 9

10 income side, in raw, working day and working day/seasonally adjusted form. From early 2007, the Statistical Service also started to produce and publish a flash estimate. Apart from the aim of having the Statistical Service of Cyprus to fulfil the entire requirement concerning the coverage of the transmission questionnaire tables, the other important point was the fulfilment of the time requirement. By the first transmission of data in 2006, the Statistical Service transmitted a full analysis of data at approximately t+60. As most of our indicators are available at t+70, revisions problems appeared in between consecutives quarters due to the forecasting of missing key-indicators. The revision problems relate to the difference between the initial and the revised figures and appeared to be more remarkable when QNA results are examined in greater detail (e.g. by economic activity). Consequently, these revision problems were taken into consideration in the assessment of this publication practice. When the Statistical Service at early 2007, started to produce and publish a flash estimate at t+45, the publication policy changed. In order to avoid, having in only 10 days, extensive revisions at the detailed level, something that could unavoidably create confusion to the users, it was decided that the full analysis (tables 101, 102, 103, 104, 105, 112) would regularly be produced, sent to Eurostat and published in the web-side at t+70 in raw, working day and working day/seasonally adjusted form, which is in accordance with Eurostat regulation. The change of the transmission date from approximately t+60 to t+70 is not in conflict with Eurostat regulation and it gives also the opportunity to reduce the revision problem as more key-indicators become available at t+70. Quarterly National Accounts and Annual national accounts estimation are closely related and took advantages from each other. As the National Accounts Section is committed by its National Dissemination program to provide an annual first estimate for the current year, even well-before the compilation of the last quarter of the year, the capability to have analytical preliminary estimates from both the production and the expenditure side (flash estimates) becomes very useful. The preliminary estimate of the year is generally done by forecasting the missing information for each indicator with Tramo but also on the basis of other information. 10

11 Chapter 2: Publication timetable, revisions policy and dissemination of QNA 2.1 Release policy There is a close relationship between annual and quarterly releases which is as follows: 1. A first preliminary estimate of annual data for year t is released at the end of June (t-6). This preliminary release contains no breakdown and gives only some overview of the economic development. 2. A second preliminary estimate is released at the end of September (t-3) and contains a revision of the year t-1. It contains basic analyses and breakdown of the production and expenditure accounts. 3. A third estimate of year t is released at early March of the successive year (t+3) with a final revision for year t-1. The analysis of year t is extended and the maximum level of detail is given. According to this plan, the estimations which should be done without a priori knowledge of the annual total are the first, second and third quarter of each year. The first annual estimate, published at the end of June (t-6), is in part based on the preliminary findings of the first quarter and the first estimate of the second, third and fourth quarter by forecasting the missing information for each indicator (purely with Tramo Seats) and by summing up the four quarters. The second annual estimate which contains basic analyses and breakdown of the production and expenditure accounts, could take advantage from the results obtained from the estimates of the first, second and third quarter. The quarterly accounts give again their new estimation of the year by estimating the fourth quarter based again on forecasting estimation of the indicator. The forecast of the indicators this time is not only the result of a technical method (Tramo-Seats) but are also combined with other sources. When publishing the fourth quarter the quarterly accounts are obliged to respect the annual constrains. Quarterly National Accounts and Annual national accounts estimations are closely related and take advantages from each other. When the fourth quarter is estimated, a simulation is made comparing the results obtained running the QNA program without and with the annual constrain. In the final revision of the year, the results coming out from the simulation procedure are taken into consideration but further information coming from the relevant activities are also taken into consideration. Quarterly national accounts are disseminated at the same time for both national and external users. In that way the directive concerning the publication timetable of the Statistical Service is driven by the coordinated release dates of quarterly national accounts of Eurostat. The Statistical Service disseminates QNA at t+45 and at t+70. These dates are communicated to CYSTAT website users through the Quarterly Release Calendar. 2.2 Contents published As already mentioned, the Statistical Service disseminates its QNA at t+45 and at t+70. At t+45 a flash estimate is compiled and the aggregate of GDP in volume, is send to Eurostat, in raw, working day and working day/seasonally adjusted form. Eurostat calculates the quarterly growth rates for the member states based on seasonally adjusted data and publishes the growth rate compared to the previous quarter and compared to the same quarter of the previous year. For the users of CYSTAT website (http// the GDP level is given for both raw and working day/seasonally adjusted data. As far as it concerns national users, the analysis in raw data still seems to be more important and more comprehensible and thus, the Statistical Service publishes in its website the growth rate of GDP in raw data compared to the same quarter of the previous year and in seasonally adjusted form compared to the previous quarter. 11

12 At t+70 the Statistical Service produces a full set of quarterly accounts which is sent to Eurostat and also published in its website: Questionnaire tables 't101cn', 't101cs', 't101cw', 't101kn', 't101ks', 't101kw', 't102cn', 't102cs', 't102cw', 't102kn', 't102ks', 't102kw', 't103cn', 't103cs', 't104cn', 't104cs', 't104kn', 't104ks', 't105cn','t105cs', 't105cw', 't105kn', 't105ks', 't105kw', 't112cn', 't112cs'. The first four characters denote the reference table, while the latest two indicate the nature of the data (cn: current prices, raw; cs: current prices, seasonally adjusted; cw: current prices, working day adjusted; kn: constant prices, raw; ks: constant prices, seasonally adjusted; kw: constant prices, working day adjusted). In another website page, a table with the growth rate of GDP in raw data compared to the same quarter of the previous year and the growth rate of seasonally adjusted data compared to the previous quarter is presented, assisted by a short list of the evolution of the main economic indicators during the current quarter. 2.3 Special transmissions The data is only transmitted to Eurostat and published in the website of the Statistical Service of Cyprus. No privileged users exist. 2.4 Policy of metadata So far, metadata is not available on the website for both Annual and Quarterly National Accounts. However, work is under way to produce metadata information on Annual and Quarterly National Accounts. According to current plans, it is expected that by the end of 2009, metadata information will be available on the website of the Statistical Service and it will be consistent with SDDS requirements. 12

13 Chapter 3: GDP components: the production approach The compilation of quarterly national accounts requires both accuracy and timeliness. For the first requirement, it is obvious that the quality of the indicators used has a crucial role and so, at the very beginning, a great and important work has to be done in the analysis of the sources available and their statistical comparison. On the other side, timeliness requires not only the early availability of the indicators, but also the capacity to update them on a regular basis in a limited time of disposal, the capacity to perform a number of steps automatically (the seasonal adjustment of the indicators, the likely need to forecast those not available, the quarterly disaggregation of both raw and seasonally adjusted data, at current and constant prices) and the ability to economically and statistically validate under pressure the final results obtained. Given the limited time at disposal to perform the estimates it has to be reminded that EU countries must transmit quarterly national accounts to Eurostat after 70 days from the end of the reference quarter and the repetitive characteristic of some steps, the system on which the estimates are based must be solid and rapid. The first step is to check for the existence of indicators (related time series observed at least on a quarterly basis) and analyse their reliability, timeliness and coherence with the sources generally used in estimating annual national accounts. Related time series, whenever available, should be preferred to the use of time trends or to the use of technical breakdowns, as these imply mechanical disaggregations with no informative economic-statistical contents. It was decided that it is better to use an indicator which is not perfect (example the case of Agricultural and Fishing where the volume index has been discontinue) instead of using a pure technical breakdown in the hope of having something better in the near future. The attention was focused on indicators available at least on a quarterly basis and with a reasonable delay from the end of the quarter. In some cases, the indicators considered as the more appropriate for quarterly disaggregation purposes are not directly available and need to be constructed. In most cases, alternative indicators are constructed for each aggregate and their relative ability in explaining the corresponding annual figures is exploited through standard econometric tests derived from the annual relationships, as obtained from the program. Therefore, the ability of short-term indicators to give reliable and timely information on the evolution of the phenomena under study is an essential feature to be addressed at the very preliminary stage. It is important to stress that the quality of the final results in the estimation of quarterly national accounts depends on a number of factors, the most important one being for countries adopting an indirect approach the quality of the indicators used. By quality we essentially mean the ability of the indicators to be good proxies of the information obtained from all those sources used at the annual level for estimating national accounts. In fact, annual data is generally estimated by considering sources generally not available (with the same level of the detail and accuracy) at the quarterly level. Annual sources are generally more exhaustive and complete than those observed and sampled at higher frequencies. In some cases, different indications coming from annual sources and short-term indicators may be explained by referring to different definitions and classifications, different coverage or even the unfeasibility of some indicators to cover all the relevant phenomena under study (for example, the non-observed economy). In other cases, very divergent and unexplained paths could give rise to some doubts about the effective ability of the indicators to predict and interpret the real phenomena. In these cases, there is a scope for a reconciliation of different sources, where short-term and long-term statistical information and sources may be combined. 13

14 3.1 Gross value added, including industry breakdowns (but excluding FISIM) The aim is to use volume indices for the compilation of the GVA from the production side and proceed to the compilation of the current prices at a second stage. Table 3. Short-term indicators used for the quarterly disaggregation of annual accounts in current and constant prices: Output approach Code for industries and denomination Related indicators Deflators AYA Agriculture, hunting and forestry AYB Fishing AYC Mining and quarrying AYD Manufacturing AYE Electricity, gas and water supply Volume index of agricultural production based on anticipated production according to yield Volume index of agricultural production based on anticipated production according to yield Volume index of mining and quarrying based on data on the production of minerals and quarrying materials Volume index of manufacturing production based on the quantities of the main manufacturing products. Production of electricity in 000 s kwh Consumer Price Index excluding VAT Local Commodities Agriculture Consumer Price Index excluding VAT Local Commodities Agriculture Composite index: Price index of construction materials (sand, gravel and road aggregate) Price index of Manufacturing Production Consumption of Electricity ( / kwh) AYF Construction Building permits authorised Price index of other Non-Metallic Mineral Products (Manufacturing) AYG Wholesale and retail trade; repairs AYH Hotels and restaurants AYI Transport, storage and communications Turnover value index on wholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods Composite index: Tourists Arrivals for Hotels Restaurant Index Composite weighted index: Volume index on air transport, telecommunications and postal services Turnover value index on land transport and auxiliaries services Composite index Implicit Retail Trade deflator Wholesale Price Index CPI: category of sales of vehicles Composite Index: Restaurants & Hotels Composite weighted index Communication, Transport 14

15 AYJ Fin. Intermediation Indicator of FISIM Deflator resulting from the whole economy excluding FISIM AYK 1 Real estate activities AYK 2 Renting of machinery and equipment AYK 3 Other bus. Activities AYL Public administration and defence Lands and survey fees (at current prices) Employment: Real estate, renting and business activities Time trend Employment: Public administration and defence; Compulsory social security Quarterly Index of Output Prices: Building Construction CPI CPI CPI AYM Education Employment: Education CPI AYN Health and social work AYO Other community, social and personal services AYP Private households with employed persons Value added tax Import duties Employment: Health and social work Employment: Other community, social and personal services Employment: Private households with employed persons Indicator at current prices recorded on a quarterly basis Indicator at current prices recorded on a quarterly basis CPI CPI Deflator resulting from the whole economy excluding FISIM Deflator resulting from the whole economy excluding FISIM The choice of the appropriate short-term indicators for the following branches: AYA Agricultural While a volume index based on data on the local sales and exports and covers crops and livestock production provided by the agricultural section, was produced by the agricultural section, the index was suspended in A new indicator on anticipated production according to yield is constructed but apparently the results are not very satisfying. AYB- Fishing The same indicator as for Agricultural is applied as no other quarterly information is available. AYF - Construction The indicator used for GVA of construction is the total number of building permits authorised. The relationship between building permits and construction GVA has proved to be satisfactory in the recent years. The large increases in claims for building permits started in 2001 and have always been followed by high rates of change of construction GVA. However, the effect is not coincidental since 15

16 people ask first for the permission to build something, but only months later building activities start to yield benefits. To catch this sort of delayed effect, the building permits indicator with a lag of twelve months has been used so far as the quarterly proxy of construction GVA. What is really problematic with this variable is its excessive volatility, especially in the latest years. The quarterly estimates of construction GVA, derived using this indicator, give unacceptable results from an economic standpoint. There exists another indicator for this sector, the turnover index (in volume) of construction activities. However, two reasons prevent the use of this series at the moment. First, CYSTAT publishes this statistic from the first quarter of 2000, so the length of the series is still too small. Second, the comparison with annual growth rates of construction GVA showed some discrepancies in the last years. The solution adopted was to smooth the series of building permits, by applying a moving average. AYG Wholesale and Retail trade The retail sales index in volume, including sales of vehicles, machinery and spare parts, was the first indicator applied for the quarterly estimation of this sector. The compilation of this statistic has stopped to be produced. The Statistical Service has started to publish an index of turnover (in volume) for retail sales from This survey does not include sales of vehicles and petrol stations: to have a comparable series with the old indicator we also need to take such activities into account. Therefore, we consider the registration of motor vehicles and derive a weighted average of the two indicators, with weights approximately equal to 0.71 (turnover index) and 0.29 (registration of motor vehicles). The short length of the turnover index does not allow us to use it directly in temporal disaggregation and then, we apply the quarterly growth rates of the new indicator from 2004 onwards to the previous retail sales index. At the recent times, the Turnover Value index of Wholesale and Retail Trade, Repair of Motor Vehicles, Motorcycles and Personal and Households Goods is applied. As this indicator is a value indicator, it is deflated before use, by a composite weighed index formed by the implicit deflator of Retail Trade, the Wholesale price index and the consumer price index for the category of Vehicles. AYH Hotels and Restaurants The number of arrivals of tourists replaced the more appropriate number of overnight stays whose production was suspended for several months. The quarterly disaggregation of annual GVA of hotels and restaurants (in volume) is made through a composite indicator. This is derived by a weighted average of two variables, the number of arrivals of tourists (proxy for hotels activity) and a restaurant index. In this case the problem arises because a volume measure and a price index are merged together. As our target series is the constant prices GVA of the sector, we transform the restaurant index in a volume measure. The change has been done by deflating the restaurant index with an appropriate price index (the CPI for restaurants). AYJ - Financial intermediation An indicator based on (Interest Received Interest Paid) + (Commissions + Credit Cards) was found satisfactory for the compilation of the value added of this activity 16

17 AYK1 Real estate activities The indicator used for this sector is the fees collected from land and surveys department (expressed at current prices). CYSTAT produces an index of building costs (materials, transports, labour costs but also fees of estate agencies) which serves to deflate the land and surveys fees. AYK3 - Other business services While it should be useful to separate this sector in two components, dwellings (70.2) and rents dummy (70.2) from one side, and computer (72), research (73) and other businesses (74) from the other side, due to the absence of a good indicator, we proceed to a technical disaggregation of this sector. Output approach at current prices The annual deflators for each branch of economic activity should be quarterly disaggregated using the appropriate indicators based on price indices. These price indices are mainly constructed from the consumer price indicators or, in a more appropriate way, from the corresponding wholesale and/or producer price indices. In any case, following as close as possible the practices followed in the compilation of annual national accounts. The raw indicators are seasonally adjusted and the derived series are used in estimating through the program, the quarterly seasonally adjusted figures. The derived series are then multiplied by the estimated quarterly constant figures, and the results are further used as indicators to quarterly disaggregate the annual current values and to maintain the annual constraints. The complete set of QNA aggregates is estimated by the Statistical Service through an indirect approach. This is a typical practice used by countries where information used to compile annual aggregates is not available at infra-annual periods. Temporal disaggregation techniques are thus applied to decompose the annual figures. The Chow-Lin s approach is employed by the Statistical Service, which disaggregates data on the basis of one or more related indicators observed at higher frequency (monthly or quarterly). The quality of indicators for some sectors must be improved. In fact, some relationships between aggregates and indicators are shown to be poor while an indicator for sector AYK3 (other business activities) should be found to avoid the use of a time trend. An important point to be addressed is the conduction of a simulation procedure: that is the ability of the estimated models to give reliable forecasts during the course of the year. The estimates of the quarters when the annual data for the last year are not yet available should not be too far apart from the annual data. The annual models are estimated for the past years, leaving outside the current year. The Chow-Lin s quarterly disaggregation procedure is applied and the estimates of the four quarters of the current year are obtained by extrapolations considering the short-term paths of the pertinent related time series. A comparison between the results shows whether there is or not relevant divergence between the estimates obtained through annual and those derived from quarterly national accounts. 17

18 3.2 The treatment of FISIM Another important issue in quarterly Accounts is the calculation of FISIM. Two approaches could be followed in QNA system based on an indirect approach: - One option is to disaggregate the annual series including FISIM with the usual indicators, - The other possibility is to consider the amount of FISIM separated from the rest of each series and estimate this part as an independent item. The second option is for sure the most appropriate when information on quarterly FISIM is available and sufficiently reliable. Unfortunately, this is not the case of Cyprus. The information used to calculate and distribute FISIM to different economic agents at annual level is not available on a quarterly basis. For example, quarterly financial accounts are not produced in Cyprus yet and thus it is impossible to distinguish stocks of deposits and loans by institutional sector. Moreover, accrued interests are available only on annual basis. Given the lack of quarterly sources, the first approach is considered as the most feasible solution for the time being. The direct estimation of FISIM remains nevertheless an important issue of QNA, and it is going to be considered as a priority in the future activities of the Statistical Service. Therefore, the adoption of the first approach enables the production of QNA with FISIM allocated and all QNA data is now consistent with the corresponding annual data in this respect. 3.3 Taxes less subsidies on products Value Added Tax The Value Added Tax is collected by the VAT Service of the Central Government. Data is provided on a quarterly basis at 12 days after the end of the reference quarter. Custom duties & Taxes on Imports Custom Duties: Is defined as the amount paid on goods of a particular type when they enter the economic territory. Taxes on Imports: Taxes on Imports are defined as taxes on goods/services that become payable at the moment they cross the national or customs frontiers of the economic territory or when these services are delivered by non-resident producers to resident institutional units. Data is collected from an administrative source (Financial Information Management Account System - FIMAS), on a quarterly basis at 70 days after the end of the reference quarter. 18

19 Chapter 4: GDP components: the expenditure approach The appropriate indicators to be used for the estimation of the demand-side are given and briefly described below. Table 4: Short-term indicators used for the quarterly disaggregation of annual accounts in current and constant prices: Demand approach Code for industries and denomination Related indicators Deflators Households consumption CP010 Food and nonalcoholic beverages CP020 Alcoholic beverages, tobacco and narcotics Turnover Volume index of retail sales of the corresponding category Turnover Volume index of retail sales of the corresponding category CP030 Clothing and footwear Turnover Volume index of retail sales of the corresponding category CP040 Housing, water, electricity, gas and other fuels CP050 Furnishing, housing equipment and routine maintenance of house CP060 Health CP070 Transports CP080 Communications Time trend Turnover Volume index of retail sales of the corresponding category Composite weighted index: Turnover Volume Index of retail sales of the corresponding category + Number of employed persons on Health and Social Work Composite weighted index: Turnover value index of Air Transport + Turnover value index of sales of motor vehicles Composite weighted index: Volume index of output of postal and telecommunications services CP090 Recreation and culture Employment in the corresponding activity CP0100 Education CP0110 Restaurants and hotels Employment in the corresponding activity Composite weighted index: Tourists arrivals + Restaurant value index CPI of corresponding category CPI of corresponding category CPI of corresponding category CPI of corresponding category CPI of corresponding category CPI of corresponding category CPI of corresponding category CPI of corresponding category CPI of corresponding category CPI of corresponding category Composite Index: Restaurants & Hotels CP0120 Miscellaneous goods and services Employment in the corresponding activity CPI of corresponding category 19

20 TRP33 Final consumption expenditures of resident households in the ROW TRP34 Final consumption expenditures of non resident households in Cyprus SES15 Final consumption expenditure of NPISHs SES13 Final consumption expenditure of general government Exports and Imports Return of Residents: All countries Arrivals of Tourists: All countries Number of employed persons: Other Community, social and personal services Government consumption expenditure Weighted index of consumer prices times exchange rates of Greece, UK and EU15 CPI CPI CPI TRP61 Exports of goods Exports of goods f.o.b. Manufacturing price index for Exports TRP62 Exports of services (excl. TRP34) Exports of services f.o.b. CPI: Services TRP71 Imports of goods Imports of goods f.o.b. Wholesale price index for imported products TRP72 Imports of services (excl. TRP33) Gross Fixed Capital Formation Pi61 Agriculture, fishery and aquaculture Pi62-Metal products and machinery equipment Imports of services f.o.b. Imported goods (value cif + duty) Imported goods (value cif + duty) Weighted index of consumer prices times exchange rates of Greece, UK and EU15 Wholesales price index for capital goods Wholesales price index for capital goods Pi63-Transport equipment Registrations of motor vehicles Wholesales price index for capital goods Pi64-Construction:Housing Pi65-Construction:Other construction Building permits for residential purposes Residual Composite index: Price index of labour cost in Construction / Price index of main construction materials in construction Composite index: Price index of labour cost in Construction / Price index of main construction materials in construction Pi66-Intagible assets Divided by four Trend 20

21 4.1 Household final consumption Separate estimates of quarterly figures are obtained by using indicators available for the specific 12 COICOP functions, namely for Restaurants and hotels (i.e. indicators of activity of Restaurant and Hotels) and Transports (i.e. turnover value index for sales of vehicles and turnover of air transport) and/or the retail sales volume indices by category. 4.2 Government final consumption Expenditure statistics for central and local government are used for the estimation of this aggregate provided by the Public Finance section. 4.3 NPISH final consumption Due to the absence of a relevant indicator, an employment indicator giving the number of employed persons in Other community, Social and Personal Services is applied. 4.4 Gross capital formation Gross fixed capital formation The compilation is produced according to the Pi6 classification. For Agricultural, fishery and aquaculture an indicator is used for imported goods for home consumption provided by the Foreign Trade Section. For the category, Metal products and machinery equipment, the indicator used is also coming from Intrastat and is based on imported goods for home consumption concerning machinery and equipment for agricultural and other purposes. For Transport equipment a weighted indicator is constructed based on registration of motor vehicles. For construction the building permits for Residential purposes, is used after it has been proceed in the same way as the Total building permits, applied in the production approach. For the category Other Construction, a number of indicators were applied with no admissible results and it was decided recently that this item would result as a residual item between the growth rate of the construction sector coming from the production side, and the item, Construction of Residential purposes coming from the corresponding category of GFCF. For the last category, concerning Intangible Assets, due to lack of indicators the annual estimate is divided into four quarters Changes in inventories and valuables They derive as a balance from the output-side GDP and the sum of other components of the demandside. 4.5 Imports, exports Exports/Imports of goods: An indicator based on external trade statistics is used. When data from Central Bank becomes available, the indicator is updated accordingly. Exports/Imports of services: The estimation of services imported/exported is at the moment limited by the lack of balance of payments data on a quarterly basis. This data is transmitted by the Central bank on a quarterly basis since

22 Expenditure approach at current prices Consumer price indices and wholesale price indices by economic destination are used for deflation of private consumption expenditures and gross fixed capital formation respectively. Exports/imports of goods are deflated by price indices of manufacturing production and an index that takes into account the international prices. For services imported, a wholesale price index for imported products is used. Services exported are deflated by the CPI deflator for services. Travels in Cyprus of non-residents are deflated using the internal consumer price index while travels abroad, by applying a weighted average of consumer indices abroad. 22

23 Chapter 5: GDP components: the income approach The income approach to quarterly GDP requires as a first step, the estimation of quarterly employment figures. In particular, the ESA 95 questionnaire foresees the transmission of employment data in persons and full time equivalent (on a voluntary basis), both in terms of employees and self-employed. In addition, it requires as compulsory, the estimation of total compensation of employees and wages and salaries figures at the A6 level. Following the Action Plan s regulation, from 2002 onwards EU countries have to transmit quarterly data on hours-worked at the same detail level. Employment figures are released by CYSTAT, together with average earnings data, on a monthly basis starting from 1995, but the monthly survey has been discontinued since mid-1999: after that date, the survey restarted in 2000 with a new code classification resulting to data not completely comparable with the old one. Therefore, there is a need for linking the two surveys while estimating missing values for the second sub-sample and rendering the periodicity of the new survey at least quarterly. The use of temporal disaggregation of annual data with quarterly indicators seems again to be the best solution for the estimation of the income aggregates. The procedure must assure the coherency of annual and quarterly series and this procedure can only be based on an indirect estimation of the aggregates, such as output and expenditure components, since the same sources on which the annual estimation is based are generally not available on quarterly frequencies. Therefore, the use of temporal disaggregation of annual data with quarterly indicators was the best solution for the estimation of the income aggregates. The income approach calculates GDP from estimates of the components of the value added of industries, branches and sectors, through the identity: GDP = Compensation of employees (CE) + Gross operating surplus/mixed income (GOS) + Taxes on production and imports (T) - Subsidies on production and imports (S). The quality of the sources for these variables is generally low compared to the information on output and, at lesser extend, to expenditure variables. This makes more reliable the estimation of GDP from the output approach. This means that in the previous identity, GDP must be considered as a fixed element, and the other components are constrained to sum up to this total. Given the lack of data on Gross operating surplus/mixed income, it was decided to estimate independently the Compensation of employees, the Taxes on production and imports and the Subsidies on production and imports, and derive the Gross operating surplus/mixed income variable as the balance of the account. The program transmission requires three quarterly tables for income aggregates. These are Table 0103 (GDP identity from the income-side), with taxes less subsidies on production and imports required as a single item, Table 0112 (Compensation of employees by industry, of which wages and salaries) and Table 0115 (Compensation of employees by industry in A17 breakdown), this last one, on a voluntary basis. The objective was concentrated on the compilation of Tables 0103 and 0112 in current prices. 23